Central Florida Homes: Overvalued
As local home sales plods along with rising Florida home prices and a more than 18-month supply at the existing drowsy sales pace, a new report casts another industry roadblock.
California-based John Burns Real Estate Consulting placed the Orlando housing market among the nation’s top 25 markets for overvalued homes. The report says the Orlando market’s median home price of $245,000 - which increased to $253,000 in June - is 28.6 percent, or $70,000, higher than what the value should be.
Orlando-area Realtors have to agree with that assessment, says Randy Martin, president of the Orlando Regional Realtor Association and a real estate agent with Re/Max 200 Realty in Winter Park.
The Orlando housing market has seen slower sales but rising prices so far this year. Realtors in the market reported selling about 49 percent fewer homes in June compared with the same month in 2006, Martin says.
“Last year was a very robust market, but now, it has swung below what we would consider to be normal,” Martin says. “Because of the new construction out there that’s available, coupled with the uncertainty with homeowners insurance and taxes, people are holding back.”
The Realtor association’s June report says about 9,495 homes sold between January and June of this year, which is 5,719 fewer than the same period last year. The median home price, meanwhile, has gradually increased each month since the 2007 low of $240,000 in March.
The Orlando market’s statistics, meanwhile, have pushed it to join the nation’s leaders for high housing costs. Along with being among the nation’s top overvalued homes markets, Forbes’ June 17 report ranked Orlando the No. 2 riskiest housing market in the United States.
Forbes points to the market’s “astronomical” 5 percent vacancy rate and says Orlando scores in the bottom third for its more than 90 percent loan-to-value mortgages and adjustable-rate Florida mortgages.
Playing catch-up
But the market’s quick rise on these lists could be a result of Central Florida’s recent shift from being an inexpensive land region to a real-estate hot spot, says Dr. Wayne Archer, director of the University of Florida Bergstrom Center for Real Estate Studies.
Prices in Florida in the past have been below the national average in most areas, but now the Sunshine State’s housing cost structure is catching up, Archer says.
“Due to the fading away of exceptionally cheap land and low permitting costs, the increases in prices lately, especially for single-family homes, are likely to be permanent,” Archer says. “It is hard to say what percent of recent increases have been due to ‘catch-up’ in land and permitting costs, but it appears to have been significant.”
In addition, Archer says Florida mortgage markets also have seen a much higher rate of appreciation than most of the nation.
But Archer adds that Orlando’s availability of land will help to keep prices flat.
Skewed figures
However, the Orlando market is very different from other cities in that prices are impacted by atypical buyers. Central Florida’s active adult buyers, second- and vacation-home buyers and even the luxury home buyers tend to drive median prices up beyond what the typical family could afford, says Anthony Crocco, director of Metrostudy’s Orlando and Jacksonville markets.
When an active adult buys a home based on assets, rather than income, that hikes up the median prices, Crocco says. In addition, if there is slower sales activity in homes selling in the $200,000-400,000 range, yet transactions continue at the same pace for those at $1 million and up, that has an impact as well, he says.
“I just think these kinds of analyses need to be taken with a grain of salt in areas like Florida,” Crocco says. “There’s no doubt the trend is happening, but the magnitude of the trend could be overstated.”
